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Making Payroll Distribution More Inclusive: How Paycards Make Payroll More Equitable

David Rodeck

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Studies have shown that minority workers are less likely to have convenient access to a bank account than white employees, which can cause unintentional workplace discrimination. Here's a look at the different benefits associated with offering paycards for employees.

Organizations are ramping up their commitment to diversity, equity and inclusion (DEI), and with good reason. Not only is it the moral thing to do, but diverse businesses are also 35% more likely to outperform their peers, according to a recent study from McKinsey.

"It's essential to have business leaders involved in your diversity, equity and inclusion issues," said Bob Lockett, Chief Diversity and Talent Officer at ADP. "We have to think of this as a business issue and a leadership challenge."

If you're looking for ways to make your organization more inclusive, consider setting up paycards for employees. This payroll option can help your staff avoid hidden bias and discrimination in the financial system.

The struggles of the unbanked

Traditional payroll methods like paper checks and direct deposit assume that an employee has convenient access to a bank account. In reality, this isn't the case for many workers, as 8.4 million households in the U.S. are unbanked, which means they do not have an account, according to the FDIC. Another 24.2 million are underbanked, which means they have a bank account but still use alternative financial services like payday loans and check cashing companies to access their funds.

Minorities are much more likely to be unbanked and underbanked. For example, 14% of Black individuals and 11% of Hispanics are unbanked, compared to just 4% of white individuals according to the Federal Reserve. If your organization's payroll only offers options that depend on a bank account, you could be imposing extra costs and hassles on your minority workers as they try to access their wages.

How financial systems disfavor minorities

It's not a coincidence that minorities are more likely to be unbanked and underbanked. Current systems still include arbitrary factors that make it more likely for minorities to be denied access to financial services. Bank staff could end up denying an applicant an account over an unconscious racial bias or on a value judgment based on the applicant's accent, attire or car make.

Minority neighborhoods are also less likely to have bank and credit union branches, with the gap being filled by more high-cost alternative options like check cashing counters. In addition, if an applicant had credit problems or financial trouble previously, it could block them from qualifying for an account.

As a result of these biased systems, millions of workers struggle with accessing financial institutions, which is why African Americans typically pay $190 more per year in incremental banks fees than the average customer, and Latino-Americans pay $262 more per year, according to Bloomberg CityLab.

The DEI value of paycards for employees

When it comes to improving your organization's DEI ecosystem, ADP recommends first understanding your current state using a maturity model assessment (which basically provides a snapshot of where you are in your DEI journey). When analyzing payroll, if your system only offers bank-based methods like direct deposit and paper checks, it could be a hidden source of discrimination. Doing so assumes everyone has easy access to a bank account, which is simply not true for many minority workers.

Lack of alternative payment options for employees can also unintentionally cascade into wage discrimination. If you consider the check cashing fees incurred by unbanked or underbanked employees, their take-home pay is effectively less than banked (primarily white) employees.

Offering paycards for employees is an equitable alternative that can provide a convenient way for your workers to receive their pay. For instance, with Wisely^® by ADP card system, you can deposit an employee's wages on a paycard that works like a Visa debit card. Employees can then use it to make purchases and withdraw money from ATMs.

With the Wisely mobile app, they can also track their balance and deposit checks using a smartphone. This could save them time and money that would otherwise be lost to check cashing services, which take a percentage of each check as a fee.

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A financial service for everyone

Paycard programs like Wisely do not track race, income or credit scores, and do not make decisions based on these factors. As a result, all of your organization's employees can qualify, regardless of their financial history. In addition, they won't have to worry about the hidden race issues that disfavor minorities in the banking system.

Unbanked employees can gain access to tools they may have been barred from using before. They can utilize their Wisely account to pay bills, get faster access to their wages through direct deposit, set up cards for family members and even earn rewards on their purchases — benefits that privileged members of society often take for granted.

A just society demands that everyone should have convenient access to their money, and that's why paycards for employees are a DEI priority.

Learn more about Wisely^® by ADP.